Friday, February 20, 2015

Tax Breaks for Protecting Landscape

Untouched nature is increasingly scarce. This is even more true close to big population centers where such areas are of high value. Below I talk mostly of forests but the ideas are more general.

Old forest. Many snags and coarse woody debris offer habitat for a wide range of organisms. Such forests are often suitable for recreational use as there is little undergrowth due to dense canopy above. Conifer forests of Rattlesnake Ledge, WA

Land is typically taxed based on it's market value. This approach is simple—it only depends on the size and location of the plot (although determining the value may be tricky). However, it does not encourage the landowners to preserve the valuable habitats, nor does it encourage it to keep the land open to public. It implicitly tells that the property owner is the sole decision-maker and does not have to take into account the others' interests. But natural landscape is valuable not just for the landowner but also for other users, such as leisure trekkers or picnickers, and for many living organisms other than homo sapiens. In economics parlance, natural landscape possesses positive externalities.

Keeping land open for everyone—for both nature and humans—should be an attractive option. It can be encouraged by making land tax dependent on the type of usage. Valuable natural habitats where the public has open access should be free of tax. In other words, we should not tax land possession but only the "exclusion" of land, using it in a way that does not permit the others (including nature) to benefit from it.

Private property: Harvested natural forest is replaced by a plantation. The area is made inaccessible both for humans and for large animals. (Former) temporal forest in Veskimõisa, EE.

This approach will bring a number of changes:

The landowners should only pay land tax on such a property that is either not open (like gardens and courtyards) or not natural (like fields). Forests, natural meadows, and other habitats should be considered as "natural land". If everyone has free access to these areas and human interference is kept at minimum, the land should be tax-free. I mean "free access" in legal sense, the owner should not have any obligation to facilitate it through specific infrastructure.

In case the landlord takes some of the natural area into non-natural use (say, by logging), then it will immediately be subject to tax. The tax will decrease over time as the nature take over and the natural/leisure value of the area increases.

Analogously, if land that was previously used for non-natural or restricted purpose is left untouched, the tax will fall over years as the value of it grows.

If land tax is based on the market value, it implicitly (albeit imperfectly) takes into account how the human value of land depends on location. Land near the population centers is expensive, and hence the potential land tax will be high. Such a tax exemption encourages creation of publicly open natural areas close to cities more than it does that in far-lying locations.

In order to be eligible for a lower tax rate, the natural value of the land must be re-assessed. The landowner should apply for re-evaluation, perhaps no more frequently than once in 5-10 years. Such evaluation reports should be made public to decrease the room for corruption.

Perhaps the largest problem with this proposal is the need to asses the non-market value of land. It is a vague concept and leaves room for interpretation. Simpler but less precise rules may be preferred instead.

Natural resources are a strong incentive to restrict public access. Diamond area in South Africa, 1940s.

Who are the winners and the losers? First, I don't think this measure would be massively used and hence the effects will be small. If it will, however, it may harm the logging and wood processing industry. Second, if the tax income from certain plots decreases, it must rise elsewhere (not just on land). So it amounts to trading more nature for higher taxes. Obviously, the winners are those who benefit from the nature and the losers are those who do not. Finally, the largest gains are experienced by property owners who already keep their natural land open for everyone.